Uncertainty in politics undermines economic rebound

A mixed economic picture comes clear in the yearbook 2025 with Bangladesh having witnessed its external accounts fairly strengthened while stubborn inflation, weak private investment and deep-rooted stress in banking continuing to weigh on growth prospects.

The year opened on a firmer footing externally, with internal imbroglios stemming from political unrest and unravelling economic miasma of yesteryears sapping much of the gains.

Record remittance inflows, a more stable foreign-exchange market and a steady rebuild-up of reserves provided much-needed macroeconomic relief after years of balance-of-payments pressure.

However, those gains failed to translate into a broad-based revival in domestic business activity.

Money sent home by Bangladeshis working overseas emerged as the most decisive stabilising force of the year. Remittance inflows rebounded strongly, reaching a record US$30.04 billion in the 2024-25 fiscal year, up 25.5 per cent from $23.74 billion a year earlier, according to Bangladesh Bank data.

Economists say the surge helped ease pressure on the local currency, taka, and supported external liquidity at a time of subdued exports.

In May, the central bank formally moved to a market-based exchange regime. Despite initial concerns hailing the switch, the foreign exchange market remained largely stable through the year.

As of December 2025, gross foreign-exchange reserves stood at $32.8 billion, compared with $24.94 billion a year earlier.

Reserves calculated under the IMF's BPM6 methodology, however, amounted to $28.11 billion.

The central bank has set a medium-term target of lifting reserves to $35 billion.

The balance of payments also swung into surplus.

During the July-October period of the current fiscal year, the overall balance recorded a surplus of $1.08 billion , reversing a $2.19-billion deficit in the same period a year earlier.

Yet relief on the external front contrasted sharply with weak domestic momentum.

Trade and business activity remained subdued throughout 2025, with political uncertainty and an unresolved election timeline dampening investor confidence.

However, in the end, the overhang of uncertainty has eased after the homecoming of the acting chairman of the BNP, Tarique Rahman, on December 2025 from prolonged exile.

The central bank kept its policy rate pegged at 10 per cent - among the highest in the region - while commercial lending rates climbed to between 16 and 17 per cent, discouraging new borrowing--hence, fresh investment and business expansion.

Private-sector credit growth dropped to 6.23 per cent in October--the lowest level in more than a decade. Investment remained slower due mainly to higher inflation and a lack of confidence in the country's political ecosystem.

Bankers say lenders remained cautious in the wake of past loan irregularities, while firms were reluctant to borrow amid high-interest regime and elevated inflation.

Inflation remains an all-upsetting drag on the economic front.

Inflation averaged at 8.8 per cent in 2025, eroding purchasing power and suppressing demand for non-essential goods, with a domino effect on the overall economy.

Meanwhile, rising non-performing loans continued to cast a shadow over the banking system, underscoring long-standing governance weaknesses. But the formation of a five-in-one new state-owned sharih-based bank - Sommilito Islami Bank - hands out some relief for the customers.

jasimharoon@yahoo.com